GSTAT Rules That ITC Misclassification Between Tax Heads Does Not Automatically Constitute Excess Availment — Lucknow Test House Vs Shashi Bhushan Singh

Background and Context

A significant ruling has emerged from the GST Appellate Tribunal (GSTAT) in the matter of Lucknow Test House Vs Shashi Bhushan Singh, where the Tribunal examined a recurring and practically important issue in GST compliance — whether a difference in Input Tax Credit (ITC) reflected across IGST, CGST and SGST heads in returns can be treated as excess ITC availment when the aggregate eligible credit of the assessee remains within permissible limits.

The assessee, M/s Lucknow Test House (GSTIN: 09AJEPG8164E1Z7), filed a second appeal before the GSTAT challenging Order-in-Appeal No. ZD0906252974501 dated 26.06.2025, by which the first appellate authority had confirmed the adjudication order dated 02.2025 and rejected the assessee's earlier appeal.

Nature of the Dispute

Period and Demand Under Challenge

The dispute pertained to the financial year April 2020 to March 2021. During scrutiny of FORM GSTR-3B filings, the adjudicating authority identified a discrepancy between the ITC claimed and the credit visible in the relevant returns. On this basis, an amount of Rs.1,00,408/- under CGST and Rs.1,00,408/- under SGST, aggregating to Rs.2,00,816/-, was treated as excess ITC availment. Proceedings were initiated under Section 73 of the CGST Act, 2017.

Critically, the proceedings carried no allegation of fraud, wilful misstatement or suppression of facts — a factor that proved central to the Tribunal's analysis.

The Assessee's Position

The assessee raised multiple substantive grounds before the Tribunal:

  • The alleged excess was not a case of fresh or wrongful ITC availment, but merely resulted from a misclassification or accounting misallocation between IGST, CGST and SGST heads.
  • The total aggregate ITC availed never exceeded the eligible entitlement of the assessee.
  • The purchases underlying the ITC were genuine, and the eligibility of credit under Section 16 of the CGST Act, 2017 had not been challenged by the department at any stage.
  • IGST credit was legally available and had remained under-utilised, while the apparent discrepancy under CGST and SGST heads arose from inadvertent clerical or accounting allocation.
  • The assessee relied upon the electronic credit ledger, books of account and reconciliation statements to substantiate the claim that there was no actual excess availment and no revenue loss to the Government.
  • Since proceedings were initiated under Section 73 without any allegation of fraud or suppression, the consequential interest and penalty were also contested as unjustified.

The Department's Stand

The departmental representative maintained that the statutory framework does not permit availment of ITC under an incorrect tax head. The department argued that where a shortfall exists under a particular tax head, the assessee is required to discharge liability under that specific head, and any excess credit under a different head must be addressed only through the refund mechanism or another prescribed remedy under law. On this basis, the department sought dismissal of the appeal and supported the impugned order.

First Appellate Authority's Reasoning

The first appellate authority had rejected the assessee's appeal by relying on Section 16(2)(c) of the CGST Act, 2017. The authority held:

"It is clear from Section 16(2)(c) of the GST Act that the appellant is entitled to Input Tax Credit (ITC) only under the tax head in which the tax has actually been deposited. Under the dual GST system implemented in India, each tax head is administered by separate federal governments, and transfer of funds from one head to another is possible only when cross-utilization of credit is made. If ITC is claimed without the corresponding tax having been deposited, the Government concerned under that particular tax head does not receive the revenue. Accordingly, the appellant's appeal is rejected."

This reasoning formed the primary legal question that the Division Bench of the GSTAT had to examine.

The core legal issue was clearly framed: whether a difference of Rs.1,00,408/- under CGST and Rs.1,00,408/- under SGST, totalling Rs.2,00,816/-, could be characterised as excess ITC availment when the assessee maintained that the equivalent credit existed under the IGST head and the aggregate eligible ITC had not been exceeded in any manner.

Given the broader legal significance of this question, the appeal was directed to be heard by the Division Bench.